AIG Seeking More Government Aid

Preparing to announce a mammoth fourth-quarter loss, the largest in U.S. corporate history, troubled insurer American International Group, Inc) is reportedly seeking additional funds from the government. The company is in discussions with the government to secure more funds so that it can keep operating after next Monday, when the nearly $60 billion loss is announced.

The huge loss, stemming mainly from write-downs on assets including commercial real estate, is likely to lead to downgrades in its insurance and credit ratings, which will force AIG to raise collateral that it does not have. Also, if AIG's book value falls below a certain level, which is very much likely, it will trigger default in some of its debt instruments.

AIG, which until last September was the world's largest insurer, was saved from going bankrupt, after receiving an initial $85 billion U.S. government bailout package. The Federal Reserve and Treasury have already provided over $150 billion of aid to AIG and the federal government now owns 79.9% of the company. Not helping AIG in its crisis could unfold a chain of events that could lead to problems for several financial institutions, which still rely on AIG to insure them against losses on loans and other debt.

However, helping AIG this time around is a little tricky, as the government's stake cannot exceed the current limit. The situation creates an opportunity for officials to find a new way by which value can be transferred to the U.S. in lieu of AIG reducing its debt so that it can then borrow more from the government to meet its collateral calls.